Ch 8: Sustainability

Why Sustainability?
Unprecedented Challenges
More people on the earth
Loss of Biological Diversity
Water demand and shortage
Irreversible damage to whole ecosystems
Climate change and need for Energy Security
Climate change increases the risk of conflicts
Controversy: nature protection and poverty
alleviation
 Unprecedented
Challenges

BUT
Solutions for a sustainable
future do exist and wait to be
implemented, although there
are no silver bullets to deliver
success.
 Sustainability Defined
Activity with unlimited time horizon. It applies to everything
(prod, cons, flow of natural, physical and human capital).
Sustainable development: development that meets the
needs of the present without compromising the ability of
the future to meet their own (World Commission on Env & Development, 1987)
In the context of Env Econ, the terms sustainability &
sustainable development are often used interchangeably.
A dynamic process which enables all people to realize their
potential and improve their quality of life in ways which
simultaneously protect and enhance the Earth's life support
systems.
Human impacts on the Biosphere
2 m people globally die prematurely due to outdoor
and indoor air pollution;
Per capita freshwater is declining globally (water
crisis);

Contaminated water single greatest environmental

cause of human sickness and death (sanitation
crisis);

The majority of well-studied species are declining

in distribution, abundance or both. (environmental
crisis)

75% habitable earth disturbed by human activity

(Hanna et al. 1994)
Living Planet Report 2006
Ecological Footprint

Wackernagel, M. and Rees, W. (1996) Our

Ecological Footprint: Reducing Human
Impact on the Earth

Reduce Your Footprint

www.bestfootforward.com
 Goals of Sustainability
All advocates share goal of sustainability, but for differing
reasons.
complements the human instincts to endure and leave
legacies.
Bequest & sympathy values: argue that the future should
be discounted very little and that we have to seek
allocation that can continue indefinitely.
2002 World Summit on Sustainable Development: see
it as vital component of long term social welfare.
 Dilemma of Sustainability
Elements of sustainability: conservation,
energy, and the sustainable use of raw
materials.
Dilemma: all of these resources appeal to
profit motives of firms as well.
A nebulous but attractive concept with a
guiding question for every activity: can this
go on?
 Sustainability Criterion
There is a controversy.
If we do favor non-decreasing welfare over
time, then: how is it best achieved and
how can we measure our level of
achievement.
Criterion for Hicksian Sustainability
It is Maintenance of consumption levels, which is defined as gross
output less investment.
In econ, it is simple: capital provides for prod, which fuels consumption,
and in turn provides welfare.
Economist treat criterion of non-declining capital and the Hicksian
maintenance of cons as being operationally equivalent to the
criterion of non-declining welfare.
A non-declining capital stock should intergenerational equity in terms of
opp for prod, consump & happiness, and the capital stock is far
easier to measure than the subjective level of happiness.
Downside is uncertainty about preferences, income & tech of future
generations.
Nonetheless, the simplification of the econ model is useful for the sake
of practicality, and this focus on availability of capital stock provides
a functional guide for res allocation.
 Weak Sustainability
Neoclassical economists John Hartwick & Robert Solow.
Physical and natural capital are substitutes, and so decline of
natural will not problematic as long as it is balanced by increase in
physical capital.
As level of natural capital decline, tech innovations will allow
physical capital to take its place. Advocates bank on tech to
maintain capital over time.
The key to sustain welfare is the maintenance of total (both) capital
stock.
Hartwicks Rule (1977): demonstrated that w. no dep of physical
capital, consumption can remain constant across diff generations iff
exhaustible natural res are never consumed, but rather turned into
physical capital.
Total stock of productive capital is sustained because each
generation converts natural into physical and lives off the output of
physical and human capital.
 Index of Sustainability (Z)
Pearce & Atkinson (1995) assumed: that human capital
will not depreciate because it has public-aspects and can
be passed across generations; also, savings are
invested in physical capital which is a perfect substitute
for natural.
Maintenance of capital stock depends on national
savings rate that is at least as great as the combined
dep rate of natural and physical capital.
The condition for sustainability is:
Z = [(Saving/GDP) (Dep of Nat + Dep of Phy)/GDP] >= 0
Z was calculated 22 countries. US, Japan, Brazil have
sustainable economies. Mex, Philip, UK are marginally,
Ethiopia, Mali & Nigeria are unsustainable.
 Strong Sustainability (SS)
Criterions: maintenance of sustainable levels of natural
capital. Ecological economist Herman Daly.
Natural & physical are complements and expect the
limited amounts of natural to form binding constraint on
future welfare.
Prefer not to rely on the uncertain tech innovations. It is
too dangerous to assume that phy can take the place of
biodiversity or the life-sustaining cycle of O2, C, N &
water for example.
Argue that neoclassical economist do not give adequate
attention to env deg & poll, which can curtail social
welfare regardless of the maintenance of total cap levels.

 Index of Sustainable Economic Welfare

(ISEW)
ISEW (Daly & Cobbs, see Ch5) adjusts GDP for poll & loss of
natural capital.
The Pearce & Atkinson version of strong sustainability is: Nat
Capital Dep/GDP <= 0
This requires nat capital dep to be 0 or negative, which would
mean an appreciation in nat capital. Non of the 22 countries
meet this criterion, although Netherland, Japan, Finland come
the closest, w. values of 1,2, and 2 respectively.
Given that nat capital is decreasing in Fig 8.1, achievement of
strong sustainability require by current generations (fewer
cars, smaller homes, more recycling, etc.).
 Course of Intergenerational Welfare
If goal is sustainable welfare (horizontal line), ecological
econ advise of gradual adjust of res use toward
sustainable level staring now (green line).
If we deplete res at current rates, we could sustain or
improve welfare in short run, but cause irreversible env
damage and corresponding loss of welfare later on (red
line).
Some economist believe that continued consump at
current levels could cause severe env losses & bring
welfare far below the survivable level in the future.
 Strong Sustainability (SS)
Requires maintenance of aggreg levels of nat capital. It
does not stipulate sustenance of specific components of
nat cap or specific rate of res flows.
Renewable Resources: harvesting these (fish, forest) at
sustainable rate would be sufficient but unnecessary
condition for SS.
Delectable Resources: like fossil fuel, can be used if they
are replaced by renewable res, like ethanol, so that the
total stock of nat capital is maintained.
Sustainable yield, from a particular sources, concept
builds upon SS.